Political row may hit economy: analyst

TROUBLE AHEAD:TIER analyst Gordon Sun said a possible delay in the ratification of the cross-strait service trade agreement would delay firms’ investment plans

By Camaron Kao / Staff reporter

The political strife resulting from the rivalry between President Ma Ying-jeou (馬英九) and Legislative Speaker Wang Jin-pyng (王金平) may negatively affect private investment this year and government spending next year, an analyst said yesterday.

“As political uncertainties rise, private companies will delay or even reduce their investment, which may drag down economic growth this year,” Gordon Sun (孫明德), director of the Taiwan Institute of Economic Research’s (TIER, 台灣經濟研究院) economic forecasting center, said by telephone yesterday.

The institute forecast on July 25 that the nation’s economic growth this year would be 2.52 percent, provided that private investment, the main driving force for economic growth, increased by 5.83 percent.

“Because growth in exports and private consumption has dwindled this year, private investment is of vital importance for the economy,” Sun said.

On Wednesday, Wang’s membership of the Chinese Nationalist Party (KMT) was revoked, as requested by Ma, which is likely to lead to Wang being replaced as legislative speaker.

As the legislature is set to review the government’s budget for next year in the next session, and if Ma cannot immediately retain control of the legislature, government spending next year may be cut significantly, affecting GDP growth next year, Sun said.

However, the political turmoil will have less of an impact on exports, which are mostly determined by orders from abroad, and private consumption, he added.

Commenting on other bills under review in the legislature, Sun said a possible delay in the ratification of the cross-strait service trade agreement with China, which grants more rights to Taiwanese companies investing in China, would postpone companies’ investment plans and possibly give their competitors a chance to catch up.

Sun said the TAIEX would likely decline to 7,800 points as money flows to Japan, Taiwan and China from Southeast Asia after the tapering of the US’ quantitative easing policy.

In addition to the government’s budget and the service trade pact, the legislature is also set to review a bill on the planned “free economic pilot zones,” a referendum on the Fourth Nuclear Power Plant in Gongliao District (貢寮), New Taipei City (新北市), and whether to give tax cuts to manufacturers of high-risk medical devices.

Council for Economic Planning and Development Minister Kuan Chung-ming (管中閔) said on Wednesday that he is not 100 percent sure the pilot zones bill will be passed by the end of this month as planned and that the implementation of tax reductions in the zones may be delayed.

Concord Securities Corp (康和證券) said yesterday that the future subsidies for local medical device makers granted by the bill are not as significant as most investors think.

“As shares in these companies declined because of the political uncertainty, it created a chance for investors to enter the market,” Concord Securities said in a report.

The Cabinet has said construction of the Fourth Nuclear Power Plant cannot continue until the referendum is held, but KMT Legislator Lee Ching-hua (李慶華), who initiated the draft version of the referendum, withdrew the draft from the legislature on Tuesday, citing “political chaos.”

“The president’s action shows that the nation’s policies can be altered at his will without any reasoning, making companies wary about the investment environment,” former Council of Economic Planning and Development (CEPD) minister Chen Po-chih (陳博志) said yesterday.